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UBS trading scandal investigation finds risk systems ignored

06 October 2011  |  12274 views  |  3 UBS web screen shot

Risk systems did pick up suspect activity at UBS related to the recent loss of $2.3 billion through unauthorised trading but the information was not properly acted on, according to an internal investigation. Meanwhile, the bank's co-heads of global equities have resigned over the scandal.

In a memo to staff quoted by the Wall Street Journal, UBS interim chief executive Sergio Ermotti say: "Risk and operational systems did detect unauthorised or unexplained activity but this was not sufficiently investigated nor was appropriate action taken to ensure existing controls were enforced."

London-based trader Kweku Adoboli has been charged by police in connection with the losses but the wider fall-out continues, with Francois Gouws and Yassine Bouhara, co-heads of global equities handing in their resignations.

In a statement, UBS says the "resignations come as they [Gouws and Bouhara] assume overall responsibility for the effective management of the equities business".

The pair are replaced by Mike Stewart, whose arrival from Bank of America Merrill Lynch was already sealed before the scandal broke.

With the bank confirming that there will be disciplinary action taken against other staff, the WSJ claims that eight equities people, including the unit's two COOs and front office staff, have been suspended pending the outcome of the investigation. Action against employees from risk-control and operations is also expected.

Comments: (3)

Elizabeth Lumley
Elizabeth Lumley - Rainmaking Innovation - London | 06 October, 2011, 10:31

The risk system were working, but no one on the trading floor was paying attention. This has been the not-very-secret common knowledge of enterprise-wide investment banking risk management, for years! 

Please don't let anyone say they are surprised. 

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Martin Davies
Martin Davies - Causal Capital Pte Ltd - Singapore | 06 October, 2011, 14:55

“Risk and operational systems did detect unauthorised or unexplained activity but this was not sufficiently investigated” – This must be very embarrassing for the risk management department.

Really how can anyone even with the smallest amount of training ignore a 2.3 billion loss. Incredible banana skin whoops our calculations were out by 2.3 billion but it isn’t even that, the dissipation light was flashing and no one noticed.  My goodness me this is moving deeply into the realm of malpractice and the risk team would need to have a heavy excuse to escape ridicule; such as the department has literally been intoxicated for the last six months.

There is of course another explanation (many I am sure), now here is the tricky bit, the risk department might have been part of the act – aiding and abetting.

It is such a huge blunder, one kind of feels that there might have been some kick back internally for the risk team to ignore this. Now if that is the case, then these people would fall guilty of the same crime rather than that of malpractice.

Okay let's see if any risk people leave UBS in the coming weeks or are prosecuted because they were asleep on watch.

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A Finextra member
A Finextra member | 07 October, 2011, 13:28

I am afraid up and down the ranks of Investment Banks you will find equal casual blindness. I can tell you that after each of this mass breakdowns within every bank there will be a root and branch internal cleansing process where they will satisfy that they a good and clean. That is until the next time. There is a greater problem than systems or casual bankers to fat on bonuses to do their job. When will the culture be examined and dealt with and by who? Banks dont appear up to it

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